CBUAE: UAE Ranks 4th in Global Islamic Finance Market 

Source: WAM

In its UAE Islamic Finance Report 2023, the CBUAE indicated an 11 percent growth in the Islamic finance sector in 2022, propelling the value of global Islamic financial assets to AED16.5 trillion (US$4.5 trillion). Over the past five and ten years, the sector has witnessed a 69 percent and 163 percent increase, respectively.

The report elucidated the evolution of Islamic finance in the UAE since the inception of the first Islamic bank in 1975, spanning across sectors such as Islamic banking, takaful insurance, and sukuk. Notably, Islamic finance has become an integral component of the UAE's financial landscape due to a robust regulatory framework that harmonises legal requirements with Islamic law provisions.

Currently, assets of Islamic banks and windows in conventional banks constitute 23 percent of total banking assets in the UAE, marking a 16 percent growth over the last five years. Moreover, the sukuk market is expanding, particularly with the recent issuance of Islamic treasury sukuk in UAE dirham by the federal government, potentially catalysing further sukuk issuances by other entities.

In recent years, Islamic finance in the UAE has seen a heightened focus on initiatives aimed at harmonising Shari'ah requirements to foster stability and growth, alongside promoting an environment conducive to innovative product and service development. Federal Law Decree No. (50) of 2022 has been instrumental in enhancing legal certainty in Islamic finance transactions, thereby bolstering trust among stakeholders.

The report underscores the significant and burgeoning role of the Islamic finance sector in global sustainability efforts, owing to the alignment between Islamic law principles and Sustainable Development Goals aspirations. Notably, the issuance of ESG-related sukuk has witnessed rapid growth, with total issuances reaching AED 120.3 billion by the first half of 2023.

Sustainable finance has experienced rapid proliferation in the UAE post the issuance of the country's inaugural green sukuk in 2019, encompassing both Islamic capital markets and financing. ESG sukuk issuances from the UAE accounted for 15 percent of global ESG sukuk.

Central bank initiatives in sustainability and sustainable finance encompass various realms such as integrating sustainability standards into reserve management, promoting digital transformation, and supervising climate-related financial risks, among others. The Higher Shari'ah Authority has been proactive in encouraging Islamic financial institutions to engage in sustainable finance, issuing guiding principles in 2023 to underscore the incorporation of sustainability into Islamic finance.

Furthermore, the report highlighted the collaboration between the central bank and Islamic financial institutions to foster sustainable Islamic finance, including the introduction of 10 requirements and recommendations for sustainable Islamic finance. A survey revealed that 79 percent of the UAE Islamic banking sector has a sustainability strategy, with the majority having their strategies approved at the board level.